Smart Moves

As a homebuyer, how can you pinpoint a property that will gain value in the future rather than decline? Instead of relying on hunches, Allan Weiss suggests you take an analytical approach.

Weiss is founder and CEO of a new company he contends can help buyers (and sellers) avert costly timing errors. Called Weiss Residential Research, the firm was started to help Wall Street better track real estate values. But its reports are now available to consumers, as well.

"Before you buy any house, you want to be sure it's not weakening in value -- unless you're getting a tremendously good deal or plan to live there for a very long time," says Weiss, an economist by training.

Weiss is no stranger to the science of property valuations. He was involved in the development of a price tracker that's widely used to chart the direction of home values. Now known as the Case-Shiller Index, it follows pricing patterns in more than 5,000 U.S. ZIP codes.

In contrast, the new Weiss index seeks to provide more precise reports on individual houses. These are designed to predict if a property will rise, fall or stay the same for a period of at least one year into the future. In essence, Weiss, which now has 50 million homes in its massive database, offers an early warning system for what's ahead.

To make its predictions for a particular property, the new company draws on widely available data -- such as tax assessments and appraisal reports -- for like homes near the subject property. Weiss says that's a more precise approach than taking an average of varied properties within the same ZIP code.

"Suppose that within the same ZIP code you have some houses worth $200,000 and others worth $2 million. They're going to have very different supply-and-demand economics. You've got to watch out for averages, which can be very misleading," Weiss says.

For a $25 fee, you can purchase a trend report for a particular property through the Weiss website (www.weissres.com). This is designed to tell you -- in percentage terms -- how the value of the property has changed in recent years and what to expect within the next year or longer.

But as the company's founder acknowledges, a Weiss report won't give homebuyers a dollar estimate of the current market value of a house they're considering. To obtain that, he recommends they turn to a real estate agent who works in the area on a day-to-day basis.

"All real estate is local, so there's no substitute for a good buyers' agent from the neighborhood," Weiss says.

Here are a few other pointers for homebuyers:

-- Try to purchase for a long time horizon.

Merrill Ottwein, a former president of the National Association of Exclusive Buyer Agents (www.naeba.org), says more buyers now view real estate as a lifestyle purchase than an investment. But he says all purchasers should factor in a property's resale potential.

Though resale estimates aren't always entirely reliable, you can increase your odds of a good outcome by buying to hold rather than as a short-term purchase.

"If your time horizon is too short -- say just a couple of years -- you may not even recoup the transaction costs you paid to get into your house in the first place. In general, it's better to plan to stay for at least three to five years," Ottwein says.

"Select the property as you would a growth stock," says Ottwein, a real estate broker who heads his own family firm.

-- Buy in a neighborhood with a high velocity of sales.

Clearly, those seeking to buy for appreciation should avoid places where foreclosure signs abound. But evidence of a high velocity of closed sales normally indicates the desirability of a neighborhood, Ottwein says.

As a homebuyer, how can you find out about the speed of sales in an area you're considering? Ottwein suggests you ask your agent for statistics on closed sales for a period spanning at least two to four years. If sales volumes are increasing, that's usually a favorable sign.

-- Look to popular urban centers for potential price increases.

Fred Meyer, a real estate appraiser and broker who sells property near Harvard University, says more Americans are becoming like Europeans in their preference for in-town living. And that bodes well for values in popular urbanized areas.

"Many people are sick of long commutes by car. They love to live near work," Meyer says.

One way to identify up-and-coming city neighborhoods is to look at data from the U.S. Census Bureau.

"The best choice for buyers is often a less expensive house surrounded by more expensive ones. That way, you should eventually get an upward progression in value for your home," Meyer says.

Besides consulting census data, another way to analyze the income levels of a community is to see if high-end retailers have a presence there. That's because such retailers do lots of due diligence before entering a market.

-- Factor school data into your thinking.

Unlike singles and empty nesters, homebuyers with school-age children are usually highly attracted to close-in suburbs where playmates are plentiful and schools are well rated.

"For families, good schools are a hard qualifier --meaning they're at the top of the 'must-have' list," Ottwein says.

Even if they don't have offspring, he says buyers can't afford to ignore data on school quality. That's because houses in neighborhoods with top schools are much more likely to hold or grow value than are those served by mediocre schools.

What data should you consider when judging schools? Ottwein says it's wise to look at test scores and the percentage of graduates who go to college. Also, an increasing number of states and localities now issue comparative school rankings.

-- Search for an area with rising employment.

Though property values are expected to stay strong in many walkable city centers, Ottwein says you can also find property prone to appreciation in selected suburbs where high-tech start-ups are proliferating.

"Employment is what these start-up communities are generating. That's what makes them promising for homebuyers," he says.

-- Seek an area where pride of ownership is obvious.

Though sales statistics and census data speak volumes about a neighborhood, subjective information is also meaningful, Ottwein says.

In particular, he encourages homebuyers to stroll through any community they're considering to look for indications that residents are committed to upkeep --including the greenery that surrounds their homes.

"Rule out a neighborhood where paint is peeling and weeds are overtaking grass. And remember that even in a wealthy area, you could be hurt by an eccentric multi-millionaire who keeps junk cars in his driveway," Ottwein says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

Real estate economists who project into the future don't always like what they see. That's because many younger people are less likely to buy a home than were their parents at a similar age.

Lawrence Yun, chief economist for the National Association of Realtors (realtor.org), says the homeownership rate for young adults under 35 peaked in 2005 at 43 percent. As of the first quarter of this year, that rate had slumped to just 36 percent.

While it's true that numerous young adults would love to buy a property, Yun says many are inhibited by financial factors. These include high levels of student debt, slow wage growth and tight credit conditions. What's more, in some popular metro areas -- such as New York and San Francisco -- they face the barrier of extremely high housing costs.

To help make home ownership possible, some young adults have parents willing to step in. Ashley Richardson, a real estate agent who's sold homes since 1993, says parental help may be offered as a spur to young people to finally move out of the family home.

Indeed, she's worked with a few boomer-age clients who've decided to downsize just to push their grown children into independent living.

"These people are deliberately buying too small a place for their kids to continue living with them. Otherwise, they would stay put in the family home," Richardson says.

How do parents typically help their financially challenged offspring obtain a property? One common approach is for parents with good credit to co-sign on a mortgage, meaning they accept financial responsibility to ensure that payments are always made. Another, much rarer, approach is for the parents to give the children a large monetary gift- -- perhaps drawn from the proceeds of an unused home equity line -- to fund the purchase of a home for cash.

"When you pay cash, there's obviously no need for a mortgage and therefore no worries about whether the buyers will qualify," Richardson says.

However, many boomer-age parents are unable to help their children buy a home. In those cases, the offspring need to stake out a modestly priced property within their own price range.

Sid Davis, a veteran real estate broker and author of "A Survival Guide for Buying a Home," says the problem for many young purchasers is that they're drawn to employment meccas -- like Silicon Valley -- where they're priced out of the housing market. But some metro areas offer the combination of plentiful jobs and reasonable housing prices.

Economists at the National Association of Realtors recently did an analysis of U.S. markets where both job growth and housing costs are favorable for homebuyers under 35. Topping the list of 10 such markets are Austin, Texas, and Salt Lake City. Seven of the 10 metro areas cited are in the Midwest and West.

Davis says young adults seeking to buy in such a city should search for an up-and-coming neighborhood that's yet to experience an influx of purchasers.

"You want an area on the verge of a lot of employment growth -- for example, through the tech or energy sectors --but where the available houses are solidly built and still plentiful. Look for a place that's not yet hip," Davis says.

Here are a few pointers for young adults planning a first home purchase:

-- Get your credit credentials in order first.

Young adults spend long hours roaming the Internet, so it's not surprising that many try to figure out if they're qualified for home homeownership through online sources.

Granted, through the Internet you can scrutinize your credit reports and look for blemishes that need fixing. Under federal law, you're entitled every year to one free credit report from each of the three large credit bureaus: Equifax, Experian and TransUnion. Just go to this website: www.annualcreditreport.com.

But Davis says there's no substitute for determining your mortgage eligibility by visiting a reputable lender.

"Mortgage pre-approval will tell you definitively how big a home loan you can obtain," he says.

Going through the pre-approval process will also give you your FICO scores. Such scores, which draw on data from the credit bureaus, provide lenders with a quantitative measure of a person's credit risk. Most lenders use FICO scores, pioneered by the Fair Isaac Corp.

Sometimes young adults -- especially those buying a first home -- are surprised at how large a home loan they could obtain, given their income and credit standing. But when choosing a property, Davis cautions against spending above your comfort level.

"Remember that loan officers work on commission. That gives them an incentive to get you into the biggest possible mortgage for which you qualify. Greed is the reason lenders want a big return from making a big loan," he says.

He urges young adults who are single to be particularly careful not to overspend on a home because they're more financially vulnerable than couples who have two jobs on which to depend.

-- Seek a place that could give you rental income in the future.

A few decades ago, it was only poor people who would consider renting out a room in their home to help offset expenses. But Merrill Ottwein, a real estate broker and former president of the National Association of Exclusive Buyer Agents (naeba.org) says "co-housing" has become increasingly common.

What kind of home should you shop for if you plan to rent out a room? He says to look for a place with a bedroom suite that includes a private bathroom, so a housemate could live more autonomously. A separate, outside entrance to the suite is also an attractive feature for potential renters.

-- Avoid buying an energy-hog house.

After taking ownership, many young adults who are buying for the first time are surprised and alarmed by the size of their utility bills, according to Davis.

While many costs associated with homeownership, such as taxes and insurance, are unavoidable, Davis notes that home shoppers can more easily contain their utility costs by selecting an energy-efficient property that's well insulated and has double- or triple-pane windows.

Also, make sure you ask the home inspector you hire about the quality of insulation in a property you're considering and the energy ratings of its windows. Davis estimates that double-pane windows can save you as much as 15 to 20 percent on your utility bills compared with single pane windows.

"A good home inspector will level with you as to whether the house you plan to buy will kill you on utility costs," Davis says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

They were a married couple of attorneys fresh out of law school. They'd landed a pair of well-paid positions in a prestigious downtown law firm. Still in their early 30s, both were driven by professional ambition. Having a family could wait.

Though skillful in law, they were novices at buying real estate. So they called Tom Early, a broker in their area. The couple told him they wanted to buy in the city, a short walk away from their work, in a building "with all the amenities."

Soon they zeroed in on a 1,200-square foot unit with three bedrooms and an upscale kitchen with taupe granite countertops and high-end appliances. The high rise also had an indoor swimming pool and gym, underground parking and 24-hour concierge service. Though the condo wasn't discounted, the couple was willing to pay what it cost for a seamless lifestyle that let them concentrate on work.

"When they have to sell that apartment someday, they probably won't make a killing. But meanwhile, they'll enjoy incredibly convenient and comfortable living," says Early, a former president of the National Association of Exclusive Buyer Agents (www.naeba.org).

As this true story illustrates, some buyers place a premium on lifestyle over potential appreciation. And as a general rule (with major exceptions such as prime New York City and San Francisco markets) urban condo-apartments usually gain value more slowly than do detached, single family houses.

"The issue is that for most city condos, the market is relatively limited compared with the market for family-style houses. Many more people are looking for the classic house with a yard where they can plant flowers and let the dog play," Early says.

As he notes, there are also other potential drawbacks to ownership of a city condo located within a high-rise building. One factor that's hard to predict is whether your neighbors will be likeable or noisy and intrusive.

Despite the possible downsides, an increasing number of young professionals who work in city settings are attracted to a downtown lifestyle, according to Mark Nash, a real estate expert and author of "1001 Tips for Buying and Selling a Home."

"They want to live where the action is," Nash says.

Early says that although the choice of city living is typically a lifestyle decision, the buyers of urban condos should keep resale firmly in mind.

Also, he says it's important to choose a condo building that would let you rent out your unit, should that prove necessary.

"Maybe in a few years, you'll be offered a job in another city and will have to move sooner than expected. In that case you might need to rent out your unit for a period to cover your mortgage payments until you sell," Early says.

Here are a few pointers for city condo buyers:

-- Lean toward a newer building if available.

Some who buy in a city market are drawn to the character and elegance of older buildings. But Early warns that high rises more than 10 years old can be prone to costly maintenance issues.

"Suppose the elevators stop working properly or the air conditioning system fails. In that case, you could be hit with a special assessment above and beyond your regular monthly condo fees," he says.

Another plus for newer buildings is that they typically have more amenities, including fancier gyms, and state-of-the-art security systems.

Nevertheless, Early often recommends against buying in a brand-new condo building.

"You have to be cautious about a large building where the developer may continue to sell units for a lengthy period. That means if you suddenly have to sell, you'll face tough competition from your builder," he says.

-- Investigate any potential property before committing.

Due to the importance of buying with resale in mind, Nash says city condo buyers should do extensive "due diligence" on any urban building they're considering.

As a first step, Nash says you'll want to understand how a condo is situated in a neighborhood.

"Go on a block-by-block property tour. Look at the surroundings of each building and what's available there, including grocery stores and dry cleaners," Nash says.

Once you've identified the best building in your price range, it's time to compare available units within that structure, giving extra points to apartments that have been upgraded.

"Don't overlook subtle differences among units. Which side of the building is the best? Are there any corner units available? Also, track down the best floor plan," Nash says.

-- Strike up conversations with residents of a building you're considering.

Every condo building has its own internal culture, which is heavily influenced by members of its owner-controlled board, as well as the management company the board hires to run the place on a day-to-day basis.

To learn more about the building's culture and whether it would suit you, Nash suggests you talk to people who already live there.

"Let your real estate agent know you want to chat with the residents of any building you like. Make arrangements to sit in the lobby for an hour or two. Then politely strike up conversations with residents entering or exiting the building," Nash says.

-- Make sure the complex you choose has ample parking.

Maybe you're like many young city condo buyers who are attracted to a city lifestyle that doesn't require you to own a car. Even so, as Nash says, you'll probably want to choose a building that reserves at least one parking spot per unit.

Granted, without a car, you may still be able to get to a downtown workplace on foot or with public transportation. But the odds are that many of your friends and relatives will still be car-dependent. In addition, your unit will likely hold its value better if it comes with a parking space.

"These days, a remarkable number of young buyers --including many in the millennial generation -- live in the city, even though their jobs are in the suburbs. So parking is still very important," Nash says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)